Associated Press, February 23, 1994.

Microsoft Loses Patent Suit

LOS ANGELES (AP) -- Microsoft Corp. was found guilty of patent infringement and ordered to pay $120 million in damages to a tiny California firm in a rare setback for the giant computer software company.

However, the federal jury on Wednesday also ruled that the violation was not willful and awarded Microsoft $13.6 million on a counterclaim against Stac Electronics, which makes a data-compression program called Stacker.

Stac executives hailed the verdict as a victory for small companies trying to compete against Microsoft, the world's largest seller of personal computer software. ``We've been vindicated in that we were a small innovative company that invented a new technology that was very important to the computer industry'' said Gary Clow, Stac's president and chief executive officer. He said Stac would immediately request a permanent injunction forbidding further sales of Microsoft products that include Stac's program, but did not rule out a future agreement with Microsoft. ``We've had a third party that's impartial put a value on the technology. To the extent that might help us come to an agreement, I'd be willing to talk to them,'' he said.

Microsoft said it would seek to overturn the judgment, which it said would otherwise cut earnings for its fiscal third quarter, ending March 31, by 26 cents per share. ``While we are disappointed with the jury's patent verdict, we believe the evidence and the law are on our side,'' the company said. Officials said Microsoft hadn't determined whether it will develop its own data compression program. Like Clow, they didn't rule out a future deal with their adversary. ``We're reasonable and open-minded about getting good technology and getting it to market,'' said William Neukom, Microsoft vice president for law and corporate affairs.

Redmond, Wash.-based Microsoft had revenues of $2.75 billion in the year ended June 30, 1993. Stac's sales for the fiscal year ended Sept. 30 totaled $37 million.

Stac filed suit in January 1993, saying its program was unlawfully included in Microsoft's MS-DOS 6.0, a 1993 update of the operating system used in most personal computers. Operating systems run such basic computer functions as opening files.

By the end of this week Microsoft will begin shipping a new version of MS-DOS without data compression capability. Mike Brown, Microsoft's vice president for finance, said copies already on retailer's shelves won't be recalled.

Jurors, who did not give their names, said they calculated the damages based on about $5.50 per unit of MS-DOS 6.0. Clow said the award would cover monetary losses suffered by Stac, but couldn't fully compensate for damage to the Carlsbad, Calif.-based company. The loss of revenue when Microsoft included the program in its software forced the company to lay off about 20 percent of its workforce and prompted a lawsuit by disgruntled shareholders, Clow said. ``The company lost its momentum. I'm not sure money alone can restore that,'' he said.

Stacker sales account for about 85 percent of Stac's business, Clow said. The company produces three versions, for the MS-DOS, IBM Corp. OS-2 and Apple Computer Inc. Macintosh operating systems. The latest version, Stacker 4.0, retails for $100 to $150. Stac also produces semiconductors used in data compression, a process used to increase the storage capacity of a PC. For instance, the version of Stacker used by Microsoft can nearly double the capacity of a computer's hard drive, Clow said.

The jury agreed with Microsoft's counterclaim that its technology was stolen by Stac and used to develop the MS-DOS Stacker.